Why buy to let tracker mortgages have been getting a bad press
Buy to let mortgages that track the Bank of England base rate
If you have been thinking about taking out a buy to let mortgage in order to purchase a property for rent, then you may have noticed news stories related to a specific type of buy to let mortgage known as a tracker mortgage. These were very popular at the beginning of the 21st century, but they have gradually fallen out of favour, and there are now groups of mortgage holders who are claiming that banks have not only failed to sell them the best mortgage, but have deliberately mislead them over the way in which tracker mortgages work.
Who is upset about buy to let tracker mortgages?
Thousands of borrowers have complained that they have experienced sudden price hikes in their mortgage rates, at a period when the interest levels appear fairly stagnant. Some of the people being forced to pay these increased charges are now having to cover interest rates at double their initial cost. It is thought that more than two thirds of the people who are suffering under this price hike are UK landlords who took the mortgage under a buy to let scheme. They are facing a steep increase in prices, unlike residents who have been offered a stepped increase to allow them to make changes. They are going to have to pay over the odds for their rental property mortgages at a time when it seems as though interest and base rates are perfectly stable.
What has caused the problems?
The main reason why so many borrowers are upset by the news of their increase in mortgage rates is due to the fact that most believed that they were signing on to a lifetime mortgage, and that the tracker mortgage would keep the level at the same rate as long as the base rate of interest remained the same. The banks have said that there is a clause in their agreement which has allowed them to increase this rate, and that they have decided to do so at this moment. This means that anyone taking on a tracker mortgage at this time will now start with the knowledge that the banks can, and will, shift the mortgage rates if they don't feel they are getting a fair rate of interest.
Why consider a buy to let tracker mortgage now?
After all of the trouble caused by these rates rises, it is not surprising that some people feel more wary of the tracker mortgage, particularly when they are hoping to run a business from the buy to let mortgage. However, there are still some advantages to getting a tracker mortgage now. Firstly, all of the doubling charges have been done now, and is unlikely to be repeated in the near future. The tracker mortgage also offers fixed initial rate starting at around 2.5%, then moving on to the higher rate when the borrower has been paying for a while. The tracker mortgage means that, for most of the time, the interest rates on the mortgage should stay the same, and should allow the borrower to get the most from their loan.
There are some ways in which the loan may be helpful for buy to let borrowers, since they are using the base line to keep the interest rates on an even keel. This means that they won't have to scramble to find the mortgage payments if banking interest rates rise sharply, since the base rate should not increase too sharply. This is of benefit to landlords, who will be getting the same income from their properties no matter what the interest rates say.